Transmeta’s buyer folds as venture capital avoids semis

Novafora, the company that bought the remains of erstwhile low-power x86 …

It's almost like there's a curse surrounding former x86 low-power CPU maker Transmeta. After burning through over $400 million in cash and essentially cratering in 2005, Transmeta sold its own corpse to another fabless semiconductor company, Novafora Inc., late last year. Now Novafora itself has gone under, becoming the latest casualty of an ongoing venture capital drought that has hit fabless semiconductor startups especially hard.

Novafora was a secretive VC-backed company that was developing a video decoder chip of some sort, and Cable Digital News reports that the company was planning a product launch this year. But, as is happening across the VC industry right now, the company had burned through its cash and was unable to score another round of funding.

In the first half of this year, VC funding declined to levels not seen since the mid-90's, according to a recent report by PricewaterhouseCoopers. In particular, investment in semiconductors reached a decade low, and this tracks with what I've heard anecdotally.

Given the stakes involved in doing a semi startup, it's not hard to see why VCs are gun-shy. You can easily sink $100 million into an idea before you're even at the point where you can get a mask set made and start prototyping. If the part works as advertised, then you get the privilege of going up against established players, each of whom is fighting for survival in the most difficult market in living memory. Of course, if you cash out successfully (typically through an acquisition) then the rewards can be huge, but the up-front risks are so high that tight-fisted VCs would rather not put so many scarce eggs in one basket.

Companies like Novafora, which was nearing the end of the development cycle for its first product but needed a bit more cash for the final push, are in particularly bad shape. Even if Novafora obtained more money and had pushed its product out the door without a hitch, the company would still have to fight for business during this downturn.

Earlier stage companies have a better shot, since the thinking seems to be that right now, talent is cheap, and by the time an early stage company is ready to go to market, we'll all be out of the woods. The PWC report shows seed and early stage investments lurching upwards by 67 percent in the second quarter of this year as the few VCs who have cash and are ready to spend it get into position for the eventual turnaround.

As for Novafora, we can add its name to the growing list of hardware companies that never even made it to market.